19th Feb 2019

A short guide to PSD2

One of the hottest topics at our recent Dispelling The Myths Around UK Payments event was PSD2. M2K Consulting’s Jonathan Williams gave a really interesting talk on this issue, going over what it is and how it’ll impact your business. You can find out more with this short guide to everything PSD2…

What is PSD2 in simple terms?

PSD2 (Second Payment Services Directive) is set to alter UK’s payment landscape forever. This game-changing EU legislation, which was dreamed up to offer both consumers and corporates wider access to financial services, started going into effect earlier this year. Some of its more disruptive elements will be introduced across 2019. Its impact will be felt across various areas from online payments and surcharges to financial security, currency conversion and complaints handling.

Here’s a few PSD2 basics you’ll need to be aware of. A major thing is that it scraps surcharging on products like consumer credit and debit cards, but not corporate cards. PSD2 also strikes a balance between opening financial services up to challengers and making sure we can make payments safely.

Are PSD2 and open banking the same?

This leads us to one myth we need to clear up. There is this idea that because PSD2 will democratise access to financial services, it’s the same as open banking. No. PSD2 just makes projects like open banking possible. Open banking gives third parties the green-light to build apps and services around financial institutions like banks via open application programming interfaces (APIs) so customers can shop around and pay all in one place.

These third parties are AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers). The first are firms like AccessPay who can access your banking information e.g. payment history.

There is clearly an appetite for this kind of thing. A new paper from DLA Piper shows that one of the key areas of interest for businesses who are championing fintech investment globally is payments, along with mobile apps.

Addressing PSD2 security concerns

Another myth we need to dispel concerns security. It’s easy to see why security is a worry. UK government numbers show that big businesses now suffer £9,260 in losses for each cyber-attack, so it’s obvious why security is on a lot of peoples’ minds. PSD2 will actually make online payments more secure for your business by introducing Strong Customer Authentication (SCA) safeguards.

This makes sure everyone is who they say they are before payments go through. If a member of your finance team is paying a supplier bill, for instance, they’ll need to give something they know (e.g. pin), something they have (e.g. phone) and something they are (e.g. fingerprint). Many in the industry already rely on 2FA, where the first two factors authenticate payments, quite successfully.

The good thing is that there are exceptions to SCA. One is recurring payments, so you can maintain direct debits without fuss. Also, open banking data is encrypted with the most advanced security measures and everyone still has to play by the GDPR rules, so there are strong safeguards in place.

PSD2: The business case

It’s clear why PSD2 is a good thing for your business. PSD2 is creating the competitive digital finance marketplace that corporates need to thrive by inspiring new products. A great example is our Cash Management treasury software, which allows you to see all your bank balances in one place. PSD2 also makes sure that payment providers settle complaints in a timely fashion, so you can make sure your payment processes run smoothly.

Find out more by downloading the Dispelling The Myths Around UK Payments guide.